U.S. Department of Justice Files Suit Against BlueCross BlueShield For Anti-Competitive Practices

The United States Department of Justice (USDOJ), through the State of Michigan’s Attorney General, filed suit last week against BlueCross BlueShield of Michigan for alleged anti-competitive practices in its contracts with hospitals.

The Complaint states that BCBS of Michigan (BCBS) violated the Sherman Act and the Michigan Antitrust Reform Act by including “most favored nation clauses” (MFN) in its contracts with hospitals in the State of Michigan. The USDOJ alleged that BCBS utilizes two types of most favored nation clauses in its contracts with hospitals.

The first type of MFN that BCBS has in its contracts is the “MFN-plus” which “require the hospital to charge some or all other commercial insurers more than the hospital charges Blue Cross typically by a specified percentage differential.”

The other type of MFN clause used is the “Equal-to-MFNs” which “require[e] hospitals to charge other commercial health insurers at least as much as they charge Blue Cross.”

Blue Cross’ use of MFNs has reduced competition in the sale of health insurance in markets throughout Michigan by inhibiting hospitals from negotiating competitive contracts with Blue Cross’ competitors. The MFNs have harmed competition by

(1) reducing the ability of other health insurers to compete with Blue Cross, or actually excluding Blue Cross’ competitors in certain markets, and

(2) raising prices paid by Blue Cross’ competitors and by self-insured employers. By reducing competition in this manner, the MFNs are likely raising prices for health insurance in Michigan.

The State of Michigan is seeking injunctive relief against BCBS of Michigan which would require the company to remove the most favored nation clause from its contracts with hospitals and enjoin the enforcement of such clauses in current contracts within the State of Michigan.

During a press conference, Christine A. Varney, the lead assistant attorney general in the antitrust division, stated that the DOJ “will continue to monitor this important industry. If we uncover other health insurers with market power that use anti-competitive MFNs to thwart competition, we will challenge them.”

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